Social Security wage base rises to $117,000 for 2014
The amount of earnings subject to taxation for purposes of calculating social security tax is called the social security wage base. This wage base changes each calendar year based on the national average wage index. The payroll tax deduction is actually based on two components: (1) Old-Age, Survivors, and Disability Insurance, or OASDI, and (2) Medicare Hospital Insurance, or simply Medicare.
The OASDI rate is 6.2% and is set by statute. This tax is paid by both the employee and the employer. The maximum deduction from an employee’s wages for calendar year 2014 is $7,254.00. This amount is calculated by multiplying the maximum wage base ($117,000 for 2014) by the OASDI rate of 6.2%, i.e., $117,000 x 6.2% = $7,254.00.
The Medicare rate is 1.45%. Since 1994, this tax has had NO maximum amount of wages, or wage base. It is calculated in the same manner as OASDI, but without regard to any limit on the amount of wages. Therefore, an employee with taxable wages of $125,000, for example, would have a deduction of $1,812.50 ($125,000 x 1.45%).
The combined total payroll tax deduction for Social Security and Medicare would be $9,066.50 ($7,254.00 + $1,812.50) This amount is paid by both the employee and the employer. Therefore, the amount of Social Security and Medicare tax paid based on this scenario would be $18,133.00.
New for 2014 – The additional Medicare tax of 0.9% applies to wages exceeding $200,000 for single taxpayers and $250,000 for married taxpayers filing jointly. This tax is paid only by the employee. There is no employer portion for this tax, although employers must withhold the employee portion.
For more information and tax tips or assistance with calculating payroll tax deductions, contact me using the form below.
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